Wednesday, December 23, 2009

Yesterday, a caller to Rush Limbaugh made a point that small businesses across America should shut down for a few weeks, lay off their employees, and help flood state unemployment offices with new applicants in response to the healthcare bill. Not just the healthcare bill but the raft of new taxes that will fall on people earning $250K or more. These are small business owners. The basic crux of what he was saying was that business runs the country and not politicians. They should shut down the money spigot and this will make big government plans unworkable.

There is an idea in economic theory regarding tax policy and how high the tax rate has to be to discourage new investment. At what point do excessive taxes literally make it preferable for business people not to work and just shut it down? The president's economic team believes it is 60%. This means that the federales have to take 60 cents of every $1 for business people to finally say: Enough!

How small business responds to their new tax obligations will be interesting. I know enough wealthy people to know that I may have been wrong in thinking that a 40% marginal tax rate was already discouraging. The relatively small sample of wealthy folks I know will probably not scale down the business as a form of protest. Thus, they deserve to be taxed. If you are unwilling to take a stand and shut it down at some sacrifice to your own income than you deserve to have people in Congress tell you what you can and cannot keep. Most of the people in Congress, including the President, have never actually produced much in their lives or created a job or done much more than basically tell others what to do via academic writings. Many of the people passing these laws tend to view business people as mindless sheep with no real intellectual depth beyond just seeking to make a buck. They may be right.

That's why I am interested to see what's going to happen and how the people who are going to pay for all this will respond. I assume they'll take it on the chin, huff and puff, and ultimately just shut up, rollover, and pay the extra taxes Obama and the liberals have in store for them. If they do, they deserve to pay every tax that's been levied on them. And in the coming years when we need to do a massive fix to pay for the looming Social Security crisis, these people will be tapped for that. And the same for Medicare. And the same for Cap and Trade. Politicians are getting away with letting the majority make no sacrifices in terms of paying extra taxes to get these types of giveaways. Why would an average person be against this healthcare reform? Since they pay literally no to little in taxes and will now get healthcare benefits that is cheap and free in many cases, why would you not be for that?

The healthcare taxes are just the first of a lot of future taxes the rich will be paying. I hate to agree with Rush Limbaugh's caller because in almost any normal time it would seem wacky. But this is not normal times and we are morphing into a socialist welfare state that is not the America I thought I knew. I don't happen to be in the position where I have a few million in assets and an income in the $500K+ range so that I would be the one faced with this decision. I acknowledge it's easier for me to write this than for someone else to do this. If the rich can't stand up now, they deserve what they get and should shut up and pay their masters.

Monday, December 14, 2009

Today the renowned economist Paul Samuelson died. His legacy made mathematics a central part of graduate economics and his influence is felt today in Obama's economic policies. He basically believed the geniuses he trained at MIT could and should manage the U.S. economy.

Unfortunately, these views still prevail every time Obama steps out and pronounces that we spend more to rejuvenate the economy. Paul Samuelson essentially advocated that when the economy is bad, government should step in and prop it up by spending as a short-term measure to stimulate demand. He basically helped advocate Keynesian economics for a new generation of the best and the brightest in the 1950's and 1960's.

Reading the old timers like Samuelson, John Kenneth Galbraith, and even Keynes is like reading up on early 20th century phrenology or eugenics. It's interesting for the time. But we have a better, or should have by now, a better idea of what's under the hood. No, head size is not a meaningful measure of intelligence. Nor is the idea that any central planner no matter how high an IQ can truly manage the complicated interaction of a vast economy.

Let's hope that as the old masters die away, their ideas die away with them. So that we can finally move ahead and improve the lives of millions of people who are struggling with unemployment, confusion, and bosses who don't know what's going on in the nation's capital.

Sunday, December 13, 2009

President Barack Obama lashed out at Wall Street, calling bankers "fat cats" who don't get it, in an escalation of tensions with the industry.Mr. Obama, speaking on the eve of Monday's meeting with the heads of major banks at the White House, said he would try to persuade bankers to free up more credit to businesses, with the aim of boosting job growth. But the president also expressed frustration with banks that the government has assisted."I did not run for office to be helping out a bunch of fat cat bankers on Wall Street," Mr. Obama said in an interview on CBS's "60 Minutes" program on Sunday."They're still puzzled why is it that people are mad at the banks. Well, let's see," he said. "You guys are drawing down $10, $20 million bonuses after America went through the worst economic year that it's gone through in -- in decades, and you guys caused the problem. And we've got 10% unemployment."

At this point, all I ask is for a degree of professionalism in the job you hold. Is that too much. Calling bankers "Fat Cats"? What is this? Are we back to the Monopoly game caricature days?

See my last post, but yes, it makes sense for bankers not to be making loans. It's your own policies and the Fed Bank's policies that are giving them every incentive in the world to do. An interest free loan where they turn around and buy a T-Bill for 3 to 4 percent from the government that lent them the money. I'd say that's an incentive to not lend since there's little risk, wouldn't you? This man has been told how great he is by his sycophants for so long, I don't think he knows how to take responsibility for the stupid things he's done. Bad policies have consequences. Why lash out when your only seeing the fruits of what you've done? Just admit your mistakes and change your approach. Instead he just increases spending, pushes harder for an awful healthcare, energy, and other miscellaneous plans. The last thing a liberal can do is admit they're wrong. So I understand it, I just wish we were dealing with normal people.

Tuesday, December 8, 2009

This question is in the news often and held up often as a potential obstacle to an economic recovery. I would suggest that a primary reason is due to Fed policy and 0% interest rates. If you are a bank and have had a bad year and have a lot of commercial real estate loans outstanding that may yet go bad in 2010, you would be smart to use Fed policy to your advantage. This means that you would take a 0% loan from the Fed discount window and invest much of it in 3% or 4% treasury bonds.

This bank money would have went to borrowers who aren't necessarily bad borrowers but may not be the absolute best credit risks. A portion of bank lending that would have went to marginally ok borrowers to start a business is not going to them because banks have probably decided it is obviously less risky to pocket a net gain of 3% to 4% rather than lend it and incur a risk that your borrower may not pay it back, especially because this is a bad economy. Even if a business idea is good it could still tank in this environment. So banks end up lending to only very good credit risks. Which makes sense. But those who have sterling credit are often not the high-end entrepreneur risk takers that make fortunes and spur economic recoveries. People with no debt whatsoever tend to be pretty practical people. Not all debt is bad provided that it is incurred to provide an investment with a solid stream of future income.

Unless banks stop acting in their self interest and pocket the spread they can get between T-Bills and Fed 0% rates, lending will probably stay poor. And an economic recovery will not be gangbusters. This is an example of the unintended consequences of government intervention.

Friday, December 4, 2009

There is something fishy in todays numbers. Maybe the BLS has been told what they can report and to stop with all the negative numbers. Not clear why ADP numbers from Wednesday were 169K and this was only 11K. Something isn't jibing.

Thursday, December 3, 2009

During today's no-holds barred, I am open to (almost) anything "jobs summit", President Obama calls out for the creation of new jobs.

"The president said there were some ideas that could be put to work almost immediately and other ideas that will become part of legislation for Congress to consider. He listed "moving forward on an aggressive agenda for energy efficiency and weatherization" as a prime candidate for quick action."

"Weatherization", if you look on the recovery.org website has already taken a lot of the stimulus "jobs" in various states. I am not sure if I want to laugh or cry that our president doesn't really appear to know how to foster a robust economy and the creation of new jobs and is looking to legislation from an overwhelmingly liberal Congress to do the trick. I am not sure what he meant by:

"But he said he puts a lot of faith in American ingenuity and industry. "We can't go back to business as usual," he said."

We can't go back to business as usual? What the heck does that mean? Job creation is actually not that complex a process to figure out. The fact that we're in December and he's finally thinking about this indicates he's in serious trouble and he's doing some CYA work here. You can't really expect to add various taxes on the people with capital and than expect the people with capital to put it to work to create jobs. At least I didn't think so. But maybe I missed that economics lesson.

How's "growing the economy from the bottom up", as Obama pledged to do during the campaign, working out?

"Throughout this period, our troop levels in Afghanistan remained a fraction of what they were in Iraq," Obama said. "Commanders in Afghanistan repeatedly asked for support to deal with the reemergence of the Taliban, but these reinforcements did not arrive."

Apparently Donald Rumsfeld the then-Secretary of Defense begged to differ:

"The president's assertion does a disservice to the truth and, in particular, to the thousands of men and women in uniform who have fought, served and sacrificed in Afghanistan," Rumsfeld said. He urged Congress to review the claim in the upcoming debate to "determine exactly what requests were made, who made them, and where and why in the chain of command they were denied."

Normally, the media would check out a statement like that from a President during a major policy address. But why should they bother fact checking now? He just says stuff. And it's ok. It's Obama.

Today an ADP report said we lost another 169K jobs in November. That it is December 2 and we're still seeing this is itself really amazing. But I assure you it's good news because the rate of decline is slower than it was last month when we only lost 195K jobs. On Friday, the official Labor Dept numbers come out. Will be interesting.

Obama hosts a job summit tomorrow to distract from the still awful jobs market over 10 months into his presidency. I guess it takes 5 years at least for people to realize they want to make money and act in their self interest to get a job or start a business. Obviously, the fact that you still have this is due to lousy economic policies since people always have an inherent tendency to want or need to work. The job summit dog and pony show will convey the "we're doing something" mentality. The Romans used the games to distract people, Obama uses a job summit.